T UNE PROTECT GROUP BERHAD (948454-K) Directors Report and Audited Financial Statements 31 December 2016
Contents Page Directors' report 1-7 Statement by directors 8 Statutory declaration 8 Independent auditors' report 9-17 Statements of financial position 18 Statements of comprehensive income 19-21 Statements of changes in equity 22-23 Statements of cash flows 24-26 Notes to the financial statements 27-165 Supplementary information 166
Directors report The directors have pleasure in presenting their report together with the audited financial statements of the Group and of the Company for the financial year ended 31 December 2016. Principal activities The principal activities of the Company are investment holding and provision of management services to its subsidiaries. The principal activities and other information of the subsidiaries are set out in Note 6 to the financial statements. Results Group Company 2016 2016 RM'000 RM'000 Net profit for the year 86,585 25,217 Profit attributable to: Equity holder of the Company 79,976 25,217 Non-controlling interests 6,609-86,585 25,217 There were no material transfers to or from reserves or provisions during the financial year other than as disclosed in the financial statements. In the opinion of the directors, the results of the operations of the Group and of the Company during the financial year were not substantially affected by any item, transaction or event of a material and unusual nature. Dividends The amount of dividend paid by the Company since 31 December 2015 was as follows: In respect of the financial year ended 31 December 2015: RM'000 Final single tier dividend of 5 sen per ordinary share of RM0.10 each on 751,759,980 ordinary shares, declared on 3 June 2016 and paid on 1 July 2016 37,588 1
Directors The names of the directors of the Company and its subsidiaries in office since the beginning of the financial year to the date of this report are: Name of Director Tan Sri Dr. Anthony Francis Fernandes Datuk Kamarudin Bin Meranun Ng Soon Lai @ Ng Siek Chuan Tan Ming-Li Razman Hafidz Bin Abu Zarim Mohd Yusof Bin Hussian Chee Siew Eng Lim Chong Beng Koot Chiew Ling Su Tieng Teck Hong Kean Yong Siegtraund Teh Siew Foong Cheong Lai Lai Lee Siang Korn @ Lee Siang Chin Junior Namjick Cho Tan Ah Moi <--------------------------------------------------------------------------- Director for the entities ---------------------------------------------------------------------------> Holding Company Subsidiaries TPG* TIMB* TPR* TDL* TDM * TIL * TIPCCL * - - - - - - - - - - - - - - - - - - Appointed on 25 July 2016 - - - - Resigned on Appointed on Appointed on Appointed on Appointed on Appointed on - 15 July 2016 21 July 2016 22 January 2016 23 June 2016 17 June 2016 15 July 2016 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Appointed on 3 June 2016 - - - - - - - Appointed on 25 July 2016 - - - - - - - Appointed on Appointed on 18 August 2016 18 August 2016 - - - Resigned on 30 April 2016 - - - - - - Resigned on 15 July 2016 Resigned on 1 July 2016 - - - Resigned on 23 June 2016 Resigned on 25 July 2016 - Resigned on 25 July 2016 Resigned on 17 June 2016 Resigned on 25 July 2016 Resigned on 15 July 2016 - * TPG TIMB TPR TDL TDM TIL TIPCCL - - Tune Insurance Malaysia Berhad - Tune Protect Re Ltd - Tune Direct Ltd - Tune Direct (M) Sdn Bhd - Tune Insurance (Labuan) Ltd - Tune Insurance PCC Ltd 2
Directors benefits Neither at the end of the financial year, nor at any time during that financial year, did there subsist any arrangement to which the Company or its subsidiaries were a party, whereby the directors might acquire benefits by means of acquisition of shares in or debentures of the Company or any other body corporate. Since the end of the previous financial year, no director has received or become entitled to receive a benefit (other than benefits included in the aggregate amount of emoluments received or due and receivable by the directors from the Company and related corporations, or the fixed salary of a full-time employee of the Company as shown in Notes 27 and 34(b) to the financial statements) by reason of a contract made by the Company or a related corporation with the director or with a firm of which he is a member, or with a company in which he has a substantial financial interest. During the financial year, the amount of indemnity given or insurance effected for any directors and officers of the Group and of the Company amounted to RM30,000,000. Directors interests According to the register of directors' shareholdings, the interests of directors in office at the end of the financial year in shares in the Company or its related corporations during the financial year were as follows: Direct interests: Directors of the Company: Number of ordinary shares of RM0.10 each As at As at 1.1.2016 Acquired Disposed 31.12.2016 '000 '000 '000 '000 Tan Sri Dr. Anthony Francis Fernandes 100 - - 100 Datuk Kamarudin Bin Meranun 82 - - 82 Ng Soon Lai @ Ng Siek Chuan 100 - - 100 Directors of the subsidiaries: Mohd Yusof Bin Hussian 35 15-50 Chee Siew Eng 10 - - 10 3
Directors interests (cont'd.) Number of ordinary shares of RM0.10 each As at As at 1.1.2016 Acquired Disposed 31.12.2016 '000 '000 '000 '000 Indirect interests: Tan Sri Dr. Anthony Francis Fernandes #1 102,609 - - 102,609 Tan Sri Dr. Anthony Francis Fernandes #2 125,083 - - 125,083 Datuk Kamarudin Bin Meranun #1 102,609 - - 102,609 Datuk Kamarudin Bin Meranun #2 125,083 - - 125,083 Notes: #1 Deemed interested by virtue of his interest in AirAsia Berhad #2 Deemed interested by virtue of his interest in Tune Group Sdn. Bhd. Other than as disclosed above, none of the directors in office at the end of the financial year had any interest in shares of the Company or its related corporations during the financial year. Employees' share option scheme ("ESOS") On 18 March 2014, the Company offered 15,715,000 ESOS shares to eligible employees of the Group. The offer period was from 18 March 2014 to 17 April 2014. The ESOS is exercisable over a period of 10 years from the grant date of 17 April 2014 at an exercise price of RM1.71 per ESOS share. The members of the committee administering the ESOS are as follows: Datuk Kamarudin Bin Meranun Razman Hafidz Bin Abu Zarim (appointed on 19 August 2016) Chen Ooi Wai (appointed on 19 August 2016) Junior Namjick Cho (resigned on 15 July 2016) Tan Ah Moi (resigned 19 August 2016) The salient features and other terms of the ESOS are disclosed in Note 28 to the financial statements. 4
Employees' share option scheme ("ESOS") (cont'd.) Details of the ESOS as at 31 December 2016 are as follows: Vesting Term to period Exercise expiry from from grant price Number of Tranche Vesting date grant date date RM options 1 17 April 2015 10 years 1 year 1.71 3,928,750 2 17 April 2016 10 years 2 years 1.71 3,928,750 3 17 April 2017 10 years 3 years 1.71 3,928,750 4 17 April 2018 10 years 4 years 1.71 3,928,750 15,715,000 On 17 November 2016, a conditional offer of 1,000,000 ESOS shares had been made with an option period of 8 years for the Group Chief Executive Officer, Encik Razman Hafidz Bin Abu Zarim at an exercise price of RM1.45. This offer is subject to the approval of the shareholders of the Company at the next annual general meeting of the Company to be convened by the month of May 2017. Accordingly, there are financial statement impacts arising due to this matter for the year ended 31 December 2016. Other statutory information (a) Before the statements of financial position and statements of comprehensive income of the Group and of the Company were made out, the directors took reasonable steps: (i) (ii) to ascertain that proper action had been taken in relation to the writing off of bad debts and the making of allowance for doubtful debts and satisfied themselves that all known bad debts had been written off and that adequate allowances had been made for doubtful debts; and to ensure that any current assets which were unlikely to realise their values as shown in the accounting records in the ordinary course of business had been written down to an amount which they might be expected so to realise. (b) At the date of this report, the directors are not aware of any circumstances which would render: (i) (ii) the amount written off for bad debts or the amount of the allowances for doubtful debts of the Group and of the Company inadequate to any substantial extent; and the values attributed to current assets in the financial statements of the Group and of the Company misleading. (c) At the date of this report, the directors are not aware of any circumstances which have arisen which would render adherence to the existing method of valuation of assets or liabilities of the Group and of the Company misleading or inappropriate. 5
Other statutory information (cont'd.) (d) At the date of this report, the directors are not aware of any circumstances not otherwise dealt with in this report or financial statements of the Group and of the Company which would render any amount stated in the financial statements misleading. (e) As at the date of this report, there does not exist: (i) (ii) any charge on the assets of the Group and of the Company which has arisen since the end of the financial year which secures the liabilities of any other person; or any contingent liability in respect of the Group or of the Company which has arisen since the end of the financial year. (f) In the opinion of the directors: (i) (ii) no contingent liability or other liability has become enforceable or is likely to become enforceable within the period of twelve months after the end of the financial year which will or may affect the ability of the Group and of the Company to meet their obligations as and when they fall due; and no item, transaction or event of a material and unusual nature has arisen in the interval between the end of the financial year and the date of this report which is likely to affect substantially the results of the operations of the Group or of the Company for the financial year in which this report is made. For the purpose of paragraphs (e)(ii) and (f)(i) above, contingent or other liabilities do not include liabilities arising from insurance and reinsurance contracts underwritten in the ordinary course of business of the Group. (g) Before the statements of financial position and the statements of comprehensive income were made out, the directors took reasonable steps to ascertain that there was adequate provision for its insurance liabilities in accordance with the valuation methods prescribed under Part D of the Risk-Based Capital ("RBC") Framework for insurers issued by BNM and to comply with the valuation requirements stipulated in the Labuan Financial Services Authority's ("Labuan FSA") Guidelines on Valuation Basis for Liabilities of Labuan General Insurance Business. Significant and subsequent events The significant and subsequent events during and after the financial year are as disclosed in Note 43 to the financial statements. 6
Auditors and auditors' remuneration The auditors, Ernst &Young, have expressed their willingness to continue in office. Auditors' remuneration are disclosed in Note 27 to the financial statements. Signed on behalf of the Board in accordance with a resolution of the directors dated 29 March 2017. Datuk Kamarudin Bin Meranun Tan Ming-Li Kuala Lumpur, Malaysia r~
Statement by Directors Pursuant to Section 251(2) of the Companies Act, 2016 We, Datuk Kamarudin Bin Meranun and Tan Ming-Li, being two of the directors of Tune Protect Group Berhad, do hereby state that, in the opinion of the directors, the accompanying financial statements set out on pages 18 to 165 are drawn up in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 1965 in Malaysia so as to give a true and fair view of the financial position of the Group and of the Company as at 31 December 2016 and of their financial performance and cash flows for the year then ended. The information set out in Note 44 to the financial statements have been prepared in accordance with the Guidance on Special Matter No.1, Determination of Realised and Unrealised Profits or Losses in the Context of Disclosure Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, as issued by the Malaysian Institute of Accountants. Signed on behalf of the Board in accordance with a resolution of the directors dated 29 March 2017. Datuk Kamarudin Bin Meranun Tan Ming-Li Kuala Lumpur, Malaysia Statutory Declaration Pursuant to Section 251(1)(b) of the Companies Act, 2016 I, Razman Hafidz Bin Abu Zarim being the officer primarily responsible for the financial management of, do solemnly and sincerely declare that the accompanying financial statements set out on pages 18 to 165 are in my opinion, correct and make this solemn declaration conscientiously believing the same to be true and by virtue of the provisions of the Statutory Declarations Act, 1960. Subscribed and solemnly decla ) ~~ the abovenamed Razman f~! fi' ~ `~,~~im ) Kuala Lumpur in the Fe erritory 'pf;;,~~.,~ on 29 March 2017 ~~ ' ~~~`,, Razman Hafidz Bin Abu Zarim N W~9~ Before me, ~ ~ ~': ~ ~'~~ s. r~~- n~~ Y., ~v~euanme rioar,~~ Wisma Abbas, o. 91-93, ~ Jalan Tuanku Ab ul Rzhman 50100 Kuala umpur r
Independent auditors' report to the members of Report on the audit of the financial statements Opinion We have audited the financial statements of, which comprise the statements of financial position as at 31 December 2016 of the Group and of the Company, and the statements of comprehensive income, statements of changes in equity and statements of cash flows of the Group and of the Company for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, as set out on pages 18 to 165. In our opinion, the accompanying financial statements give a true and fair view of the financial position of the Group and of the Company as at 31 December 2016, and of their financial performance and their cash flows for the year then ended in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 1965 in Malaysia. Basis for Opinion We conducted our audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing. Our responsibilities under those standards are further described in the Auditors responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Independence and other ethical responsibilities We are independent of the Group and of the Company in accordance with the By-Laws (on Professional Ethics, Conduct and Practice) of the Malaysian Institute of Accountants ( By- Laws ) and the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants ( IESBA Code ), and we have fulfilled our other ethical responsibilities in accordance with the By-Laws and the IESBA Code. 9
Independent auditors' report to the members of (cont'd.) Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the Group and of the Company for the current year. These matters were addressed in the context of our audit of the financial statements of the Group and of the Company as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditors responsibilities for the audit of the financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis of our audit opinion on the accompanying financial statements. 1. Valuation of general insurance contract liabilities of the Group The Group s insurance contract liabilities as at 31 December 2016 amounted to RM562.9 million or approximately 78% of its total liabilities. The insurance contract liabilities include the claims and premium liabilities of the insurance and reinsurance subsidiaries, Tune Insurance Malaysia Berhad and Tune Protect Re Ltd. These liabilities have been estimated based on standard actuarial valuation methodologies and other estimation models as allowed under the Risk-based Capital Framework issued by Bank Negara Malaysia and guidelines issued by the Labuan Financial Services Authority, as well as the accounting policies described in Note 2.3(q)(ii), (iii) and (iv) for premium liabilities, claim liabilities and liability adequacy test respectively. The complexity of the actuarial valuation methodologies and other estimation models applied to claims and premium liabilities may give rise to estimation errors as a result of inadequate or incomplete data, the design and application of the relevant valuation models by the management s expert and the use of inappropriate or outdated assumptions. In deriving the claims and premium liabilities of the Group as at 31 December 2016, the Directors and management have commissioned the services of an independent third-party professional actuary ( the Appointed Actuary ). 10
Independent auditors' report to the members of (cont'd.) Key Audit Matters (cont'd.) 1. Valuation of general insurance contract liabilities of the Group (cont'd.) Estimates of claims liabilities have to be made for both the expected ultimate costs of claims already reported at the reporting date, and for the expected ultimate costs of claims incurred but not yet reported ( IBNR ) as of the financial year end. The estimates of premium liabilities is based on the higher of the Unearned Premium Reserves ( UPR ), as estimated by management and the Unexpired Risk Reserve ( URR ), as estimated by the Appointed Actuary. The estimation of insurance contract liabilities are sensitive to various factors and uncertainties as discussed in Note 37(b). Significant management judgement is applied in setting these assumptions. Our audit procedures were focused on the following key areas: Understanding and documenting the qualifications, objectivity and independence of the Appointed Actuary tasked with estimating the insurance contract liabilities of the Group; Reviewing the reports prepared by the Appointed Actuary in respect of the insurance contract liabilities of the Group; Assessing the design and testing the operating effectiveness of internal controls over the actuarial valuation process with respect to financial reporting; Testing the completeness and sufficiency of data used in the actuarial valuations. These tests also included control tests performed on a selected sample of claims reserves, claims paid and insurance policies issued by the Group to ascertain effectiveness of operating controls over quality and accuracy of the underlying data; Assessing the experience analyses of the insurance and reinsurance subsidiary used during the setting of the key assumptions to derive the insurance contract liabilities and challenging the rationale applied by the Appointed Actuary and management in deriving those assumptions. In addition and where appropriate, comparisons have also been made against other industry constituents and the experience of the respective subsidiaries; 11
Independent auditors' report to the members of (cont'd.) Key Audit Matters (cont'd.) 1. Valuation of general insurance contract liabilities of the Group (cont'd.) Performing independent analyses and re-computation of the insurance contract liabilities for selected classes of business, focusing on the most significant business portfolio and those which may potentially result in significant deviations in estimates. We compared our independent analyses to those performed by management to ascertain if the reserves were sufficient and within range of our independent analyses; Reviewing the Liability Adequacy Test results performed by the insurance and reinsurance subsidiaries; Performing tests on the UPR calculations produced by management and thereafter, comparing the UPR against the URR valuation performed by the Appointed Actuary to ascertain if adequate reserves have been established; Reviewing management s estimation of the calculated reinsurance assets and thereon, their assessment of the credit quality of the security of the underlying reinsurance counterparties; and Assessing the adequacy of disclosures made in respect of the insurance contract liabilities of the Group as disclosed in Note 16. We have also engaged our Actuarial Services professionals in accordance with the requirements of International Standards on Auditing 620 : Reliance on the Work of an Auditors Expert to assist us in performing our audit procedures on the insurance contract liabilities of the Group. 2. Intangible asset Goodwill of the Group and Investment in insurance subsidiary of the Company (a) Intangible asset Goodwill of the Group Goodwill represents the purchase consideration paid to acquire the net identifiable assets and liabilities assumed for the insurance subsidiary of the Group. The carrying value as at 31 December 2016 amounted to RM24.2 million (as disclosed in Note 9 to the financial statements). This asset, which has an indefinite useful life is tested for impairment annually and whenever there is indication that it is impaired. 12
Independent auditors' report to the members of (cont'd.) Key Audit Matters (cont'd.) 2. Intangible asset Goodwill of the Group and Investment in insurance subsidiary of the Company (cont'd.) (b) Investment in insurance subsidiary of the Company The Company s investments in subsidiaries amounted to RM175.5 million as of 31 December 2016 (as disclosed in Note 6 to the financial statements). Included in investment in subsidiaries is the cost of investment in the insurance subsidiary, Tune Insurance Malaysia Berhad, amounting to RM164.5 million. The Group has performed an impairment assessment to ascertain if the Value-In-Use ( VIU) of the insurance cash generating unit ( CGU ) is sufficient to support the carrying values of the intangible asset goodwill of the Group and the investment in insurance subsidiary of the Company. In testing for impairment, the Group estimated the VIU of the insurance CGU using the discounted cash flow ( DCF ) method. The DCF method requires the application of assumptions which are subjective in nature and which will require judgement in its application. The application of such assumptions will have an impact on the estimated VIU and thus, affect the impairment decisions to be made for the CGU. The key assumptions used in deriving the VIU of the insurance CGU include gross written premium growth, retention and claims incurred ratios, terminal value estimates and discount rates. These key assumptions are disclosed in Note 9 to the financial statements and the policy for impairment of non-financial assets is disclosed in Note 2.3(g). Our audit procedures were focused on the following key areas: Challenging the key assumptions which would have the most significant effect on the estimated VIU calculated by the Group and benchmarking these against industry and historical experiences of the Group; Understanding the rationale and considerations used by management in deriving the relevant assumptions underlying the DCF and related VIU estimates; Performing mathematical accuracy calculations on the DCF workings performed by the Group; 13
Independent auditors' report to the members of (cont'd.) Key Audit Matters (cont'd.) 2. Intangible asset Goodwill of the Group and Investment in insurance subsidiary of the Company (cont'd.) Performing appropriate stress-tests on the DCF estimated by the Group to estimate the VIU of the insurance CGU; and Assessing the adequacy of disclosures made in respect of goodwill of the Group and investments in subsidiaries. Information other than the financial statements and auditors report thereon The directors of the Company are responsible for the other information. The other information comprises the information included in the Annual Report, but does not include the financial statements of the Group and of the Company and our auditors report thereon. Our opinion on the financial statements of the Group and of the Company does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements of the Group and of the Company, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements of the Group and of the Company or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the directors for the financial statements The directors of the Company are responsible for the preparation of financial statements of the Group and of the Company that give a true and fair view in accordance with Malaysian Financial Reporting Standards, International Financial Reporting Standards and the requirements of the Companies Act, 1965 in Malaysia. The directors are also responsible for such internal control as the directors determine is necessary to enable the preparation of financial statements of the Group and of the Company that are free from material misstatement, whether due to fraud or error. 14
Independent auditors' report to the members of (cont'd.) Responsibilities of the directors for the financial statements (cont'd.) In preparing the financial statements of the Group and of the Company, the directors are responsible for assessing the Group s and the Company s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so. Auditors responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements of the Group and of the Company as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with approved standards on auditing in Malaysia and International Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with approved standards on auditing in Malaysia and International Standards on Auditing, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financial statements of the Group and of the Company, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group s and the Company s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures. 15
Independent auditors' report to the members of (cont'd.) Auditors responsibilities for the audit of the financial statements (cont'd.) Conclude on the appropriateness of the directors use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group s or the Company s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors report to the related disclosures in the financial statements of the Group and of the Company or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors report. However, future events or conditions may cause the Group or the Company to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial statements of the Group and of the Company, including the disclosures, and whether the financial statements of the Group and of the Company represent the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial statements of the Group. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the financial statements of the Group and of the Company for the current year and are therefore the key audit matters. We describe these matters in our auditors report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. 16
EY Building a better working world Independent auditors' report to the members of (cont'd.) Other reporting responsibilities The supplementary information set out in Note 44 on page 166 is disclosed to meet the requirement of Bursa Malaysia Securities Berhad and is not part of the financial statements. The directors are responsible for the preparation of the supplementary information in accordance with Guidance on Special Matter No. 1, Determination of Realised and Unrealised Profits or Losses in the Context of Disclosure Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, as issued by the Malaysian Institute of Accountants ("MIA Guidance") and the directive of Bursa Malaysia Securities Berhad. In our opinion, the supplementary information is prepared, in all material respects, in accordance with the MIA Guidance and the directive of Bursa Malaysia Securities Berhad. Other matters This report is made solely to the members of the Company, as a body, in accordance with Section 266 of the Companies Act, 2016 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report. E ~ +~ Ernst & You~n 9 J AF: 0039 Chartered Accountants randon Bruc Sta Maria No. 2937/09/17(J) Chartered Accountant Kuala Lumpur, Malaysia 29 March 2017 17
Statements of financial position As at 31 December 2016 Group Company 2016 2015 2016 2015 Note RM'000 RM'000 RM'000 RM'000 Assets Property and equipment 3 8,897 8,891 1,077 921 Investment property 4 2,926 2,954 - - Intangible assets 5 3,998 4,884 681 846 Investments in subsidiaries 6 - - 175,475 187,782 Investments in associates 7 52,328 47,788 40,955 40,955 Investment in a joint venture company 8 2,101 1,251 433 433 Goodwill 9 24,165 24,165 - - Investments 10 693,593 587,622 67,145 69,038 Deferred tax assets 17 2,683 696 - - Reinsurance assets 11 211,733 244,802 - - Insurance receivables 12 141,187 132,273 - - Other receivables 13 113,478 123,063 7,943 8,411 Cash and bank balances 9,713 33,293 895 7,190 Total assets 1,266,802 1,211,682 294,604 315,576 Equity Share capital 14 75,176 75,176 75,176 75,176 Share premium 14 173,343 173,343 173,343 173,343 Merger deficit 15 (13,838) (13,838) - - Available-for-sale ("AFS") reserves (4,809) (4,969) - - Employee share option reserves 5,897 4,705 5,897 4,705 Foreign currency translation reserve 7,486 5,777 - - Retained earnings 253,390 211,002 36,251 48,622 Equity attributable to owners of the parent 496,645 451,196 290,667 301,846 Non-controlling interests 6 44,712 40,424 - - Total equity 541,357 491,620 290,667 301,846 Liabilities Insurance contract liabilities 16 562,858 577,288 - - Deferred tax liabilities 17 1,505 1,802 - - Insurance payables 18 108,614 87,550 - - Retirement benefits 19 418 530 - - Other payables 20 52,050 52,892 3,937 13,730 Total liabilities 725,445 720,062 3,937 13,730 Total equity and liabilities 1,266,802 1,211,682 294,604 315,576 The accompanying notes form an integral part of the financial statements. 18
Statements of comprehensive income For the financial year ended 31 December 2016 Group Company 2016 2015 2016 2015 Note RM'000 RM'000 RM'000 RM'000 Operating revenue 21 516,621 480,193 45,982 28,789 Gross earned premiums 22(a) 486,345 453,448 - - Premiums ceded to reinsurers 22(b) (153,327) (149,608) - - Net earned premiums 22 333,018 303,840 - - Investment income 23 30,276 26,745 45,982 28,789 Realised gains and losses 24 48 (28) 1,948 833 Fair value gains and losses (242) (375) (1,791) (940) Fees and commission income 28,966 27,289 - - Other operating income 25 4,989 6,991 5,373 3,522 Other revenue 64,037 60,622 51,512 32,204 Gross claims paid 26 (177,196) (162,927) - - Claims ceded to reinsurers 26 73,088 72,763 - - Gross change to contract liabilities 26 29,079 (17,516) - - Change in contract liabilities ceded to reinsurers 26 (38,181) (14,608) - - Net claims 26 (113,210) (122,288) - - Fee and commission expense (85,729) (80,823) - - Management expenses 27 (107,090) (82,235) (24,924) (19,353) Other operating expenses 25 (370) (285) (1,307) (663) Other expenses (193,189) (163,343) (26,231) (20,016) Share of results of associates 2,808 (2,835) - - Share of results of a joint venture company 1,219 527 - - Profit before taxation 94,683 76,523 25,281 12,188 Taxation 29 (8,098) (3,640) (64) (31) Net profit for the year 86,585 72,883 25,217 12,157 The accompanying notes form an integral part of the financial statements. 19
Statements of comprehensive income For the financial year ended 31 December 2016 (cont'd.) Group Company 2016 2015 2016 2015 Note RM'000 RM'000 RM'000 RM'000 Net profit for the year 86,585 72,883 25,217 12,157 Other comprehensive income/(loss): Items that will not be subsequently reclassified to profit or loss: Share of other comprehensive income/(loss) of an associate 84 (198) - - Items that may be subsequently reclassified to profit or loss: Changes in AFS financial assets, net: 92 (911) - - - Gain/(loss) on fair value changes of AFS financial assets 10(d) 176 (1,002) - - - Realised gains transferred to profit or loss 10(d) (29) (305) - - - Deferred tax relating to AFS financial assets 17 (55) 396 - - Effect of post-acquisition foreign exchange translation reserve on investment in associates 1,709 4,316 - - Other comprehensive income for the year 1,885 3,207 - - Total comprehensive income for the year 88,470 76,090 25,217 12,157 Profit attributable to: Owners of the parent 79,976 68,972 25,217 12,157 Non-controlling interests 6,609 3,911 - - 86,585 72,883 25,217 12,157 Other comprehensive income/(loss) attributable to: Owners of the parent 1,869 3,359 - - Non-controlling interests 16 (152) - - 1,885 3,207 - - 20
Statements of comprehensive income For the financial year ended 31 December 2016 (cont'd.) Group Company 2016 2015 2016 2015 Note RM'000 RM'000 RM'000 RM'000 Total comprehensive income attributable to: Owners of the parent 81,845 72,331 25,217 12,157 Non-controlling interests 6,625 3,759 - - 88,470 76,090 25,217 12,157 Earnings per share attributable to owners of the parent (sen per share) Basic and diluted 30 10.64 9.17 The accompanying notes form an integral part of the financial statements. 21
Statements of changes in equity For the financial year ended 31 December 2016 <----------------- Attributable to the owners of the parent ----------------> ---------------------------- Non distributable -------------------------- Distributable Employee Foreign Available- share currency Non- Share Share Merger for-sale option translation Retained controlling Total capital premium deficit reserves reserves reserves earnings Total interests equity Group RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 RM'000 (Note 14) (Note 14) (Note 15) At 1 January 2015 75,176 173,343 (13,838) (4,012) 2,169 1,461 172,401 406,700 38,511 445,211 Net profit for the year - - - - - - 68,972 68,972 3,911 72,883 Other comprehensive (loss)/income for the year - - - (957) - 4,316-3,359 (152) 3,207 Total comprehensive (loss)/income for the year - - - (957) - 4,316 68,972 72,331 3,759 76,090 Grant of equity-settled share options to employees - - - - 2,536 - - 2,536-2,536 Dividends on ordinary shares (Note 31) - - - - - - (30,371) (30,371) - (30,371) Dividends paid to non-controlling interests (Note 6) - - - - - - - - (1,846) (1,846) At 31 December 2015 75,176 173,343 (13,838) (4,969) 4,705 5,777 211,002 451,196 40,424 491,620 At 1 January 2016 75,176 173,343 (13,838) (4,969) 4,705 5,777 211,002 451,196 40,424 491,620 Net profit for the year - - - - - - 79,976 79,976 6,609 86,585 Other comprehensive income for the year - - - 160-1,709-1,869 16 1,885 Total comprehensive income for the year - - - 160-1,709 79,976 81,845 6,625 88,470 Grant of equity-settled share options to employees - - - - 1,192 - - 1,192-1,192 Dividends on ordinary shares (Note 31) - - - - - - (37,588) (37,588) - (37,588) Dividends paid to non-controlling interests (Note 6) - - - - - - - - (2,337) (2,337) At 31 December 2016 75,176 173,343 (13,838) (4,809) 5,897 7,486 253,390 496,645 44,712 541,357 The accompanying notes form an integral part of the financial statements. 22
Statements of changes in equity For the financial year ended 31 December 2016 Nondistributable Employee Disshare tributable Share Share option Retained Total capital premium reserve earnings equity Company RM'000 RM'000 RM'000 RM'000 RM'000 (Note 14) (Note 14) At 1 January 2015 75,176 173,343 2,169 66,836 317,524 Total comprehensive income for the year - - - 12,157 12,157 Dividends on ordinary shares (Note 31) - - - (30,371) (30,371) Grant of equity-settled share options to employees - - 2,536-2,536 At 31 December 2015 75,176 173,343 4,705 48,622 301,846 At 1 January 2016 75,176 173,343 4,705 48,622 301,846 Total comprehensive income for the year - - - 25,217 25,217 Dividends on ordinary shares (Note 31) - - - (37,588) (37,588) Grant of equity-settled share options to employees - - 1,192-1,192 At 31 December 2016 75,176 173,343 5,897 36,251 290,667 The accompanying notes form an integral part of the financial statements. 23
Statements of cash flows For the financial year ended 31 December 2016 Group Company 2016 2015 2016 2015 Note RM'000 RM'000 RM'000 RM'000 Cash flows from operating activities Profit before taxation 94,683 76,523 25,281 12,188 Adjustments for: Investment income 23 (30,276) (26,745) (45,982) (28,789) Net unrealised gains on foreign exchange 25 (2,715) (1,751) (309) (10) Realised gain on disposal of AFS and fair value through profit or loss ("FVTPL") investments 24 (35) (145) (1,956) (1,110) Realised loss on disposal of investment in a subsidiary 24 - - 8 - Realised loss on disposal of investment in an associate 24-73 - 277 Fair value losses of investments 242 375 1,791 940 (Gain)/loss on disposal of property and equipment 24 (13) 100 - - Depreciation of property and equipment 3 2,174 1,950 417 393 Depreciation of investment property 4 28 28 - - Amortisation of intangible assets 5 2,379 2,068 306 205 Write-off of property and equipment 25 312 - - - Write-off of intangible assets 25-270 - - Allowance for/(reversal of) impairment losses of insurance receivables 12 588 (3,112) - - Grant of equity-settled share options to employees 27(a) 1,192 2,536 416 497 Impairment loss on investment in subsidiaries 25 - - 1,307 663 Share of results of associates (2,808) 2,835 - - Share of results of a joint venture company (1,219) (527) - - Operating profit/(loss) before working capital changes 64,532 54,478 (18,721) (14,746) Reinsurance assets 51,010 14,479 - - Insurance receivables 36,213 (41,249) - - Other receivables 8,880 (39,696) 563 (3,168) 24
Statements of cash flows For the financial year ended 31 December 2016 (cont'd.) Group Company 2016 2015 2016 2015 Note RM'000 RM'000 RM'000 RM'000 Cash flows from operating activities (cont'd.) Insurance contract liabilities (32,372) 38,049 - - Insurance payables (22,118) 20,788 - - Retirement benefits (9) 10 - - Other payables (1,320) 14,178 1,441 (391) Cash generated from/(used in) operating activities 104,816 61,037 (16,717) (18,305) Net interest received 29,460 18,959 33 140 Net dividend received 1,320 10,913 43,507 26,160 Rental received 313 363 - - Retirement benefits paid 19 (103) (272) - - Income tax paid (10,576) (7,469) (106) (100) Net cash generated from operating activities 125,230 83,531 26,717 7,895 Investing activities Purchases of AFS financial assets 10(d) - (857) - - Purchases of FVTPL financial assets 10(d) (222,180) (56,175) (47,000) (27,500) Proceeds from maturities/disposal of AFS financial assets 10(d) 12,173 5,885 - - Proceeds from disposal of FVTPL financial assets 10(d) 155,639 47,700 51,500 40,500 Increase in loans and receivables ("LAR") (58,233) (36,985) - - Proceeds from disposal of property and equipment 37 7 - - Purchase of property and equipment 3 (2,517) (1,059) (573) (240) Purchase of investment property 4 - (103) - - Purchase of intangible assets 5 (1,493) (1,304) (141) (642) Subscription of additional shares in subsidiaries 6 - - - (800) Net cash (used in)/generated from investing activities (116,574) (42,891) 3,786 11,318 25
Statements of cash flows For the financial year ended 31 December 2016 (cont'd.) Group Company 2016 2015 2016 2015 RM'000 RM'000 RM'000 RM'000 Financing activities Advances from subsidiaries - - 481 12,054 Dividends paid to equity holder (37,588) (30,371) (37,588) (30,371) Dividends paid to non-controlling interests (2,337) (1,846) - - Net cash used in financing activities (39,925) (32,217) (37,107) (18,317) Net (decrease)/increase in cash and cash equivalents (31,269) 8,423 (6,604) 896 Effect of exchange rate changes on cash and cash equivalents 181 959 309 10 Cash and cash equivalents at beginning of year 79,589 70,207 7,190 6,284 Cash and cash equivalents at end of year 48,501 79,589 895 7,190 Cash and cash equivalents comprise: Fixed and call deposits (with original maturity of less than three months) with licensed financial institutions (Note 10(a)) 38,788 46,296 - - Cash and bank balances 9,713 33,293 895 7,190 48,501 79,589 895 7,190 The accompanying notes form an integral part of the financial statements. 26
Notes to the financial statements For the financial year ended 31 December 2016 1. Corporate information ("the Company") is a public limited liability company, incorporated and domiciled in Malaysia, and is listed on the Main Market of Bursa Malaysia Securities Berhad. The principal activities of the Company are investment holding and provision of management services to its subsidiaries. The principal activities of the subsidiaries are set out in Note 6. There have been no significant changes in the nature of the principal activities of the Company and its subsidiaries during the financial year other than disclosed in Note 6. The addresses of the principal place of business and registered office of the Company are as follows: Principal place of business Level 9, Wisma Tune No. 19, Lorong Dungun Damansara Heights 50490 Kuala Lumpur Registered office B-13-15, Level 13, Menara Prima Tower B Jalan PJU 1/39, Dataran Prima 47301 Petaling Jaya Selangor Darul Ehsan The financial statements were authorised for issue by the Board of Directors in accordance with a resolution of the directors on 29 March 2017. 2. Significant accounting policies 2.1 Basis of preparation The financial statements of the Group and of the Company have been prepared in accordance with Malaysian Financial Reporting Standards ("MFRS") as issued by the Malaysian Accounting Standards Board ("MASB"), International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and the requirements of the Companies Act, 1965 in Malaysia. At the beginning of the current financial year, the Group and the Company had fully adopted the new and amended MFRSs as described fully in Note 2.4. 27
2. Significant accounting policies (cont'd.) 2.1 Basis of preparation (cont'd.) The financial statements of the Group and the Company have been prepared under the historical cost convention, unless otherwise stated in the accounting policies. Financial assets and financial liabilities are offset and the net amount is reported in the statements of financial position, only when there is legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liability simultaneously. Income and expense will not be offset in the statements of comprehensive income unless required or permitted by any accounting standard or interpretation, as specifically disclosed in the accounting policies of the Group and of the Company. The financial statements are presented in Ringgit Malaysia (RM) and all values are rounded to the nearest thousand (RM 000) except when otherwise indicated. 2.2 Basis of consolidation (a) Basis of consolidation The consolidated financial statements comprise the financial statements of the Company and its subsidiaries as at 31 December 2016. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has: - - - Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee); Exposure, or rights, to variable returns from its involvement with the investee; and The ability to use its power over the investee to affect its returns. Generally, there is a presumption that a majority of voting rights results in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including: - - - The contractual arrangement with the other vote holders of the investee; Rights arising from other contractual arrangements; and The Group s voting rights and potential voting rights. 28
2. Significant accounting policies (cont'd.) 2.2 Basis of consolidation (cont'd.) (a) Basis of consolidation (cont'd.) The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, incomes and expenses of a subsidiary acquired or disposed of during the year are included in the statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary. Profit or loss and each component of other comprehensive income ("OCI") are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-controlling interest and other components of equity, while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised as fair value. (b) Business combinations and goodwill Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, which is measured at fair value at the acquisition date ("acquisition date fair value"), and the amount of any non-controlling interest in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree s identifiable net assets. Acquisition-related costs are expensed as incurred and included in management expenses. 29